State proposals to trim business property taxes going forward, but local Elkhart County officials still have doubts

ELKHART — The two proposals in the Indiana legislature to trim business property taxes vary widely.

Even so, Indiana Rep. Tim Wesco thinks there's room to hammer together some sort of compromise between the two that'll generate majority support, even if the plans have generated opposition from many local government officials, including an Elkhart County contingent.

In making his case, the Republican lawmaker from Osceola, speaking Friday, Feb. 7, noted that reform of Indiana's personal property tax rules is a priority of Gov. Mike Pence and Republicans in both the Indiana House and Senate. Whatever the case, he acknowledged there's a gap to bridge between House and Senate proposals, and he doesn't know what any final legislation — if ultimately approved — would look like.

"I don't know where the middle ground is because they're so dramatically different," he said.

At the same time, the notion still has plenty of opposition.

Elkhart Mayor Dick Moore, for one, spoke out against the legislative proposals, using the question-and-answer period at the Third House gathering Friday organized by the Greater Elkhart Chamber of Commerce, where Wesco spoke. Many local government officials in Elkhart County and across Indiana, mindful of tax losses brought on since 2009 due to property tax caps, worry about the continued loss of revenue that would potentially result from the new proposals now up for debate.

"We need to ask you to please consider us, cities and towns," said Moore, a critic of the proposals. Additional losses would "make us less a complete city than what we are."

Elkhart County government officials, meeting separately Friday at their annual summit in Goshen, expressed reservations.

Elkhart County Commissioner Mike Yoder said if the business property tax is to be eliminated, the lost funds should be offset with some sort of replacement revenue. Axing the tax completely would cut costs in the Elkhart County Assessor's Office, he noted. But still, the county continues to build reserves depleted by the recent economic downturn.

THE PLANS: HOUSE BILL 1001, SENATE BILL 1

Originally, Pence called for complete elimination of the business property tax, or personal property tax, which generates around $1 billion a year statewide and applies to business machinery and equipment. Proposals put forth in the House and Senate — approved by the respective chambers last week, though they still face continued debate — don't go that far.

The House plan, House Bill 1001, calls for elimination of the business property tax only on new equipment, starting when it's purchased. The tax would remain on existing equipment. Moreover, the legislation leaves it to individual counties to decide whether to implement the change or not.

"It's not as onerous as sometimes it's portrayed," said Wesco.

According to Wesco, the measure would reduce property tax collections among Elkhart County's cities, towns, schools, county government and other taxing units by $2.98 million, collectively, if officials here chose to adopt the cut. Among Elkhart County's delegation to Indianapolis, Wesco and Reps. Wes Culver, Rebecca Kubacki and Dave Ober voted for the proposal. Rep. Tim Neese voted against it.

The Senate proposal, Senate Bill 1, calls for eliminating the personal property tax on small businesses, those with less than $25,000 in machinery. It would also gradually reduce the corporate income tax rate from 6.5 percent to 4.9 percent by 2019 and eliminate a range of tax credits.

According to the Legislative Services Agency, S.B. 1 would reduce business property tax revenues entering local coffers by $31.45 million across Indiana and by $1.46 million in Elkhart County.

Local foes of the plans have said if any measure is to be adopted, it should include mechanisms to replace lost funds, the sort of plea made by Yoder. Neither does, though, and both Wesco and Indiana Sen. Joe Zakas, R-Granger, indicated that aspect of the issue still has to be debated.

All three senators serving Elkhart County — Zakas, Carlin Yoder and Ryan Mishler — voted for S.B. 1 last week.

OFFSETTING REVENUE 'ABSOLUTELY ESSENTIAL'

Zakas, who also appeared at Friday's Third House gathering, said S.B. 1, would move Indiana from 10th place on the list of U.S. states with the best business climates to eighth. It would also eliminate the business tax on 71 percent of businesses in Indiana, most of them smaller operations.

"That's a pretty positive thing to do for the small business community in the state of Indiana," he said.

Wesco emphasized that H.B. 1001 would apply only to new business property and that it's optional. He envisions smaller counties implementing the tax to be competitive with larger counties in luring new businesses. "I think this is another economic tool local communities will have to attract business to the community," he said.

Moore, by contrast, thinks that making elimination of the business tax optional would potentially pit neighboring counties against each other when one adopts it and another doesn't.

More importantly, though, Moore seems to worry about the specter of having to cut city services if another tax cut is enacted. An offsetting revenue source is "absolutely essential" if state lawmakers are going to move ahead with their efforts.

Wesco authored the proposal at the request of local officials in Elkhart County, who envisioned the tax as a means to help deal with property tax losses in recent years. Even if the legislation passed in Indianapolis, individual counties would have to decide whether to implement the tax.